Tuesday, March 10, 2009

EU says Romania is asking for bailout

Monday, March 9, 2009

BRUSSELS, Belgium: Romania will ask the European Union and the International Monetary Fund for financial help to balance its budget this year, the EU's top economy official said Monday.

It is the fourth eastern European nation to seek help, following Hungary and Latvia — both part of the EU — and Ukraine.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia would not estimate how much Romania might need before EU and IMF officials talk to the government to assess its problems. He said Romania must still formally ask the EU for a loan.

"We are ready to react every time that support is needed ... as would be the case once we have received a letter from the Romanian authorities," he told reporters.

The EU's 27 nations have up to €25 billion to lend to member states in trouble that don't use the euro currency. The bloc already has spent €9.6 billion bailing out Hungary and Latvia.

Almunia said he thought the fund was big enough to bail out Romania and other eastern European nations that might need help.

But Austrian Finance Minister Josef Proell disagreed, telling reporters Monday that "the €25 billion probably won't be enough if developments go on."

Romania's currency has plunged by a fifth over the past year as its once booming economy cooled rapidly. The country's central bank warned last month that it might need help to shore up some €26.2 billion in foreign currency reserves it held in December to keep its own currency stable.

Falling exchange rates are a major problem for many borrowers in the country because nearly two-thirds of retail loans were taken out in euros, which offered lower-interest rates. This helped fuel a housing bubble.

Monthly payments are now soaring — as are defaults, up 8 percent in December from a month earlier.

The EU loan would be funded by a bond sale, Almunia said. The amount the EU can raise this way is limited because its own rules prevent it running up debt.

The IMF said Monday that it will hold talks with Romanian officials in Bucharest on March 12-25 on a bailout package from the IMF, the EU and the World Bank.

Almunia said those negotiations also will decide on a list of conditions on how Romania should manage its economy in future.

Romania is one of the newest — and poorest — members of the EU, joining the bloc in 2007 and receiving billions of euros in aid to bring it closer to richer western neighbors.

EU officials has been very critical of the government's handling of the economy. They warned last year of economic overheating and growing public debt. The EU has also chided Bucharest for backtracking on key judicial reforms meant to battle corruption and organized crime.

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